Air India’s debt nightmare

The Indian national carrier has $3.2 billion of debt on its balance sheet, according to the country’s civil aviation minister Praful Patel. This is double what it had in November 2007 and mainly related to aircraft purchases by Air India and Indian which merged that year. Air India has taken out loans to pay for 49 of the 111 aircraft it has on order, adds Patel.

True, the merger resulted in additional debt on the joint balance sheet. But it also shows that Air India’s managers were unprepared for a downturn, when low debt levels and strong cash flows are essential to managing operations. As a result, the airline has had to defer paying employee salaries and go to the government, its owner, for additional funds.

The state has approved an infusion of public funds, but it has also demanded that the airline present a plan within a month on how it will restructure its operations in the coming years and return to profitability. Air India must take this opportunity to make the necessary changes it needs. Market share is useless without revenues, and costs have to be trimmed. Unions must also be engaged in order to ensure that the employees are on board as well.

If anyone wants to know why Indian airlines are making massive losses despite growing demand for air travel, they only need to look at Air India’s statistics to know how inefficient operations are.